As announced on 31 January 2022, the United Arab Emirates (UAE) will introduce a federal Corporate Tax (CT) on business profits at the rate of 9% that will be effective for financial years starting on or after 1 June 2023.
Individuals have been categorized as natural persons. The UAE CT shall be levied on Business Profits earned by a Natural person or legal person. Other incomes like Employment Income and personal income like Dividend income shall not be taxed provided it is earned in a personal capacity.
If a natural person conducts other business or commercial activity without incorporating a company, this can invite corporate taxation. In general, if the individuals are required to get a commercial license or equivalent permit in the mainland or Free Zone to conduct this activity it will be taxed as per the corporate tax regulations.
The corporate tax applies to all legal persons in UAE and foreign legal persons that have a permanent establishment in the UAE or earn UAE-sourced income.
The legal entity would generally refer to a company incorporated in the UAE, although there may be other forms of legal entity as well. A legal entity incorporated in the UAE will always be treated as a tax resident of the UAE taxable on their worldwide income in the UAE.
Legal persons can be classified into incorporated persons such as
Limited Liability Companies,
Private Shareholding Companies,
Public Joint Stock Companies,
Other entities established under the UAE laws,
Limited Liability Partnerships,
Partnerships limited by shares, and
Other types of partnerships
The incorporated persons may be incorporated in the UAE or out of the UAE. If the legal persons are incorporated in the UAE, their worldwide income will be subject to CT, and if the businesses are incorporated out of the UAE, still their income would be subject to CT in the UAE if these businesses:
• are being controlled and managed in the UAE (worldwide income will be subject to CT).
• have a Permanent establishment in the UAE (UAE source income will be subject to CT)
• earn any UAE source income (UAE source income will be subject to CT)